What is a credit score definition? Types of credit score and its history
Meaning of credit score
In simple words, the definition of credit score is a score number or numerical expression which is calculated by the creditworthiness of an individual by the Credit reporting agency.
A credit score means a 3 digit number which ranges between 300 to 900 defines the eligibility of loan approval. A credit score is acquired by a Credit bureau agency. Generally higher the credit score determines higher the eligibility to get a loan and vice-versa.
A person’s creditworthiness represents some factors such as
- Customer’s payment history
- How long the customer has debt
- The types of credit the customer have like a student loan, auto loan, credit card, mortgages, etc
- How much debt the customer has
- How much credit limit a customer is using
If we measure the factors for credit score through a pie chart
These are factors which are considering because of getting credit reports or score of an individual.
History of Credit scores
- First In 1956, Engineer Bill Fair teamed up with mathematician Earl Isaac who created Fair, Isaac, and company now known as FICO. This Company First started the Credit score system in the world.
- But FICO officially first started it’s credit risk score in 1989 then every lender like banks, NBFCs and Governments are using the FICO score in determining credit risk. This was the first invention of credit score in the world.
- After that other credit reporting agencies also started their services for providing credit score and they are EQUIFAX, TRANSUNION and EXPERIAN.
Types Of Credit Score
- Plus score
- Creditxpert score
- Vantage score
- Insurance score
- Lender-based score
- Experian’s National Equivalency Score
- CE credit score
- Credit Karma score
These are all the credit score which have impacted the loan eligibility of an individual. There are also other types of credit score which also exist in terms of providing credit score.
In conclusion,Credit score have become most crucial and important for loan disbursement process in current 21st century.